Interview with David Lohr, president of U. S. Steel Košice

He graduated with a degree in industrial engineering from the University of Pittsburgh, and later completed an executive management program at Pennsylvania State University. His career with U. S. Steel spans over 30 years, taking him from the management of various plants and operations to the presidency of U. S. Steel's mill in Košice. David H. Lohr.
photo: Courtesy of David Lohr

The Slovak Spectator (TSS): You arrived to take over U. S. Steel Košice in May. What were you sent here to accomplish?

David Lohr (DH): We've actually had ownership in the plant here since November 2000 and we had a relationship [joint venture with the VSŽ steel mill] several years before that. I'm the third president of U. S. Steel Košice, and I know all the ex-pats who have been here since 1998, so I'm very familiar with the plant and the products and what we're doing here. My job was to come here and move forward the things that [former U. S. Steel presidents] John Goodish and Chris Navetta started before me. The plant has good equipment, and we're quite happy with the customer base we have, so it's a matter of continuous improvement and refinement. This is not a plant in any kind of difficulty. There's nothing here that needs to be fixed, put it that way.

TSS: Are you going to try and reduce the workforce to make production more efficient?

DL: We're always looking to improve our efficiency in terms of the products we deliver our customers, as well as internal yields and measurements. From the cost standpoint, we recognize the business we're in is a cost business. Our customers have a lot of choice, so they are going to buy from suppliers who have competitive costs and pricing. So that's our goal.

TSS: You promised the government when you took over the VSŽ steel mill in 2000 that you would invest $700 million by 2010 and keep employment levels stable. Will you be meeting both of those targets?

DL: Our actual commitments today are in that range, and as we move on and continue to be successful, with some of the additional facilities we have in mind, my guess is that we'll far exceed that.

TSS: And in terms of employment? Do you have any figures for the end of the decade?

DL: We really don't. It's an interesting thing, that as we move forward we'll add new facilities that will create more jobs, but we'll also become more efficient. As we get new equipment that's more modern and less labour-intensive, there will be some balance as we add facilities and become more productive. But it's difficult to predict, and depends quite a bit on the market itself, and whether our investment here spawns more investment.

TSS: US Steel Košice has been very profitable, while its predecessor was on the verge of cross-default in 1998 and owed Sk11 billion. How do you explain the difference in the success of the current company and VSŽ?

DL: It's hard to comment on the prior owners as to why they had the difficulties they had. We bring to this plant a model that has worked for us at our other locations, one which is founded on doing the right things right. It's founded on continuous improvement, people working hard, and everyone knowing what the company's goals are and feeling a part of it. Our pay system here rewards employees for the company's success - a component of their wage is variable, and the more successful we are, the more money our employees get. So we not only talk about success, but they see the benefits of the company being successful. But you can't take a cookie-cutter approach to it, and there's a number of areas where we can improve.

TSS: Slovak labour tends to avoid strikes and activism in relations with business. Is that another factor, besides low wages, that attracts investors to Slovakia?

DH: The labour unions here have been good partners for us. We keep them well informed, and we have regular meetings with the labour leaders. We try not to surprise them, and they've been very supportive, but they've also been tough negotiators when it comes to contracts. As you mentioned, we made a commitment to the Slovak government to maintain employment levels and invest significantly in the plant. We believe that once we make a commitment we should honour it, and we've held up our end of the bargain. Our employees have been very supportive and have worked hard, and they know we have high demands. There have been occasions when employees didn't want to follow the rules, and these employees no longer work for us. But that's a very small number. We've been fair but firm, and I think people respect that.

TSS: Has the Slovak government also kept all of its commitments to you?

DL: We've had a good relationship with the government. In getting this plant we ended up with a tax holiday in order to take on this investment risk, and in return we made some commitments on investment and employment. We're in a dispute now with the government over CO2 credits and greenhouse gases under the Kyoto protocol and how the national allocation plan has gone for the CO2 credits, and we'll have to see how that works out. We have a commitment from a number of people in parliament and the prime minister himself, who said at the groundbreaking for our new galvanizing line [June 23, 2005] that he supported finding a solution. I believe we'll work it out, but it is a major problem, not just for us but for the power companies as well and anyone else who consumes a lot of carbon-based products like coal in their production.

TSS: In foreign relations, the United States is said to be closer to the countries of the "New Europe", like Slovakia, than to "Old Europe". Is the same true of business culture?

DL: I think we're definitely more accepted here, the country understands the developing economy and the need for investment, so I think we're much more welcomed here than we would be in the original 15 in the European Union, that's for sure. There's a respect for the fact that we came here early on and took a big risk in coming to this country. A partnership has developed that would be difficult to have in some of the other EU countries. Also, from a scale standpoint, this investment is a major employer in Slovakia, whereas in Germany or France we would not represent as significant a percentage of the GDP or employment statistics.

TSS: Slovakia has changed much of its legislation and regulatory apparatus to gain entry to the EU. How happy has U. S. Steel been with the changes? Has Slovakia imported too much EU bureaucracy?

DL: You're never going to be happy with every little item, but in total being a part of the EU and being able to trade in what will ultimately be one economy outweighs any of the growing pains along the way. We see the new 10 [EU member] countries as working very hard to do what is necessary and eventually be able to have the common currency. There are still some issues with the EU Constitution with the French or the Dutch, and not everyone is going to agree with it, but it's going to happen.

TSS: On August 22 the police announced they had charged Slovak citizen Ivan C. with defrauding U. S. Steel Košice's corporate predecessor, the VSŽ steel holding company, of several hundred million crowns from 1996 to 1998 under the former VSŽ management of Alexander Rezeš. To what extent is VSŽ's corrupt past still with you?

DL: We're our own company, and I'm not aware of the past being an issue at all. You read various things in the paper, but we're all about wanting to be as transparent as possible and having the rules of business apply. The sooner we can get to the situation where everything is transparent and open, the sooner this will be an easier and better place to do business.

TSS: Slovakia has in the past few years attracted some large strategic investments to the auto sector, to the SPP gas company, and to Košice in U. S. Steel itself. To what extent were these decisions independent, and how much do they now reinforce each other? Were the automakers, for example, drawn to Slovakia by U. S. Steel Košice's presence?

DL: They were all independent decisions, but it's interesting how they go step by step. The car companies already were here to a degree, and we had an idea that there would be more investments by car companies in the future. We're quite happy with the pace at which it has happened, but our market studies showed that there would be more automotive investment in this part of the world. We counted on it, although we didn't know the timetable. We're very optimistic, and obviously the government has played a significant role in that, showing their interest in attracting investment and their willingness to build roads or provide other incentives - to do whatever has to be done to play the role a government should play.

On a smaller scale we haven't been as instrumental in attracting anyone the size of KIA or Peugeot, but we run an office in town [Košice] called the Economic Development Centre to make it easier for people to get answers to questions on tax issues, infrastructure issues, schools or technical skills. By helping to get investors interested in the region, we believe that ultimately those will be investors who consume steel and who have good-paying jobs to offer, and people here in turn will be able to buy more washing machines and cars, and the thing will feed on itself.

We see this already at the plant - I had only been here a week before I was asked by the employees, "when can we get the parking lots expanded?" So we're expanding, which just goes to show. Our employees now own more cars than they ever did, and they'll continue to buy more. As you say, it's synergistic. You can't exactly sit down and say, "this is going to happen", but you know the direction it's going in, that if you have investment and well-paying jobs and unemployment falling, the economy will take off. You can draw curves showing how much steel will be consumed per capita based on where countries are in their development. It's just good business.

TSS: When you broke ground on your new galvanized steel line in June, you said your aim was to supply Slovakia's newest auto industry investors. Do you have any contracts signed?

DL: We supply steel to the automakers, but we don't supply exposed, automotive quality steel in the form of hoods and door panels or outside skins. But already today we supply steel for wheels and structural components. These businesses are much more interested in our company, and they recognize we will be able to supply steel that will be helpful to them, so they're learning more about us, and we're getting more awards for the kind of steel that we can make today. During the next year we will be undergoing trials and getting our steels qualified. Companies won't just start buying your steel tomorrow, they have to get comfortable with it, so we'll run trials, and they'll take pieces and parts to Korea and France, and mould them and bend them and test them, and then say "now you're qualified". It's a gradual process.

TSS: Does the same apply to white goods and appliance manufacturers?

DL: They do have a qualification process, they need to be sure that your steel can be formed and welded, that it's surface quality, but their requirements aren't quite as demanding as exposed automotive quality. We produce steel for clients on our galvanizing lines today, and we'll be making even more tomorrow.

TSS: As a long-time U. S. Steel executive you would inevitably have been aware of Slovakia before you came here, but does the same apply to other US business people looking to invest abroad? Is Slovakia's name among international investment circles really as good as the government claims?

DL: I think people do know about Slovakia. We took a major step here and got a lot of publicity for that. People have been watching how well we're doing, and the fact we're making more investments here speaks louder than talk. People are aware of our success, and our customers talk to us about it, whether it's Whirlpool or General Motors or others. The credibility of Slovakia's becoming a member of the EU is also very important, as is the NATO situation - those are all things that get the country in the news, as well as the fact there have been significant reforms here. The publicity that the government has been getting for these things isn't just isolated to this region. Word has been getting out.

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